News Feature | December 17, 2013

Where There Are Deals There Will Still Be Profits…Maybe

Competition abounds this holiday season; stores continue promotions and wait with bated breath to see earnings

Last week, the U.S. Census Bureau reported the highest sales numbers seen in five months. The results were in line with the National Retail Federation’s, which cites consumers’ growing confidence in the economy following a line of shaky months. For retailers, these results suggest that all the early holiday sales, the Thanksgiving Day shopping hours, and the advertising investments were a good way to go.

This year, the industries reporting the highest year-over-year sales are the big ticket sellers: electronics and appliance stores, which showed growth of over 8 percent from last year, and furniture and home furnishing stores reporting 9.4 percent growth. It’s no secret that the interest rates on houses have been particularly low, and the home improvement markets, in particular, are reaping the benefits. Home Depot and Lowes reported increases in their third quarters as customers came in to buy whatever they might need to initiate their long overdue home improvement plans. And as customers add new coats of paint to the walls or replace the cabinets in their kitchens, why not turn to the furniture stores to purchase a new dining room set, television, or couch to spruce up the rest of the house?

However, while the big ticket items are showing growth, people are, naturally, seeing less money in their accounts to go out and buy general merchandise. Forbes writer Paula Rosenblum provides several key reasons for the “anemic increases” seen by big box retailers like Walmart and Target. For one, she says the heavy promotional activity being seen throughout the month of November to get customers interested in holiday shopping has decreased the dollar value of sale items, which means more items are being bought, but for lower prices. She also cites the overwhelming number of big box and dollar stores out there for customers to choose from, which ultimately results in customers picking one of the “big box boys” and supplementing the rest of their holiday shopping with goods from the dollar stores.

And then there’s Amazon … though this shouldn’t come as a surprise, considering it was ranked the champion of third quarter sales, boasting 24 percent increases in revenue. Between its use of robots, its drone ambitions, and its extensive online presence in a time of e-commerce growth, the e-retail goliath is causing its fair share of damage for retail stores. As Rosenblum says, “Amazon is a 21st century version of the original Sears catalog or a real-life version of Alice’s restaurant.” Because Amazon seems to offer everything from clothing to food now, people are choosing to put items into their virtual shopping cart while at home on the couch, rather than in bricks-and-mortar stores.

Rosenblum also voices some concerns about the apparel category. While clothing and apparel saw a 4.4 percent increase, this segment has been relying on particularly steep promotions to ensure that inventories are cleared out to make way for the incoming spring lines. She cites retailers like Chico’s, Old Navy, and Abercrombie & Fitch, which are already advertising 50 to 60 percent off of all products, including products already marked down. While discounts —dubbed as “retail theatre” by the Wall Street Journal — are carefully “engineered illusions” that enable stores to make the profit they’re hoping for, Rosenblum still expresses concern that it will be difficult for retailers to make money from products going for half price. Not to mention that the competition this holiday season has been intense, which could leave retailers with too much inventory and heavier markdowns. What the numbers will look like for retailers following this holiday season has yet to be determined, but one thing is for certain: the deals are necessary for business to continue. Considering the turmoil JC Penney encountered when it tried to cut all promotions, it’s been made perfectly clear that deals are what it takes to make customers enter and leave stores feeling like they’ve come out on top throughout the holiday season — and throughout the year.